Morning roundup

The computer begs to be rebooted. But the tabs...

• There's an underlying demand-side problem to misinformation. You can't con an honest man...


• Some days, I love our Environment Minister. Here's David Parker giving Auckland Council a deserved slap for nonsense around character designations. People who want to protect character are "entitled to do that in respect to their own property. But in other parts of their suburb, there will be areas where more intensive housing will and should be built." EXACTLY!! If only central government would fix the incentives that encourage councils to do this...


• New Zealand regime around medicinal cannabis remains a broken mess. I think it was allowed to fall into disrepair on expectation that legalisation would be coming and make it redundant. It has to be very frustrating for anyone who needs cannabis as treatment, and anyone who wants to supply it. The Newsroom column is gated today, but I think will ungate tomorrow if you pull out the /pro from the link. In addition to all the other problems, medicinal cannabis suppliers have a tough time finding banking or insurance. 


• Kate MacNamara keeps digging on the messes around Covid testing regulation. Just impossibly frustrating. You can use a LAMP test to meet the testing requirements to fly to NZ. It's way more accurate than a RAT. But they're banned in NZ. If you try begging permission to use one here just to give some added assurance before going to visit a vulnerable relative, the Government just doesn't answer. Vogons would give the MoH an award for being more Vogon than anything they'd ever come up with. 


• One problem for all the "let's base policy on happiness" people at Treasury and elsewhere: the measures are crap and you can't do anything with them. Here's Bond & Lang, JPE 2019:

  "The necessary conditions for nonparametric identification are strong and unlikely to ever be satisfied. Standard parametric approaches cannot identify this ranking unless the variances are exactly equal. If not, ordered probit findings can be reversed by lognormal transformations. For nine prominent happiness research areas, conditions for nonparametric identification are rejected and standard parametric results are reversed using plausible transformations."

  If you can just run a plausible transformation on the dependent variable to reverse a result, you've got another degree of freedom to justify whatever policy you'd wanted to rationalise. 


• National Party leader Chris Luxon says he doesn't like corporate welfare in the climate response. Good! But the ETS revenues are hypothecated. Does he support putting them back into general revenues? Or, better, would he support a carbon dividend? I like National's emphasis on an ETS led approach, but that's harder if you don't rebate ETS revenues back to households. If he's not going to, he should promise to end the hypothecation that's let Robertson have a slush fund. 
  


• Princeton no longer supports academic freedom.


• Regulatory regimes can embed fragility against shocks. NZ building materials supply, US baby formula...

Ok. I think I can reboot now. 

Cash for Clunkers with New Zealand Characteristics

Monday's column in the Stuff papers went through America's failed experiment with Cash for Clunkers, anticipating that the government was about to announce our own version. 

A snippet:

As an economic stimulus, it failed. Rather than encouraging a lot of new car purchases, the programme mainly subsidised purchases that would have happened anyway. Some households brought forward a new car purchase by a few months to get the subsidy; others had already planned on purchasing a car during that period.

In other words, it was a very expensive way of getting people to slightly change the timing of a new car purchase. It did not otherwise succeed as a stimulus – it had no effect on employment or other indicators.

And because it only really shifted the timing of new car purchases, it was not particularly effective as support for the car industry.

But it also failed as an environmental programme, unless cost really is no object. People did buy more fuel-efficient vehicles, but the programme was far less effective than a carbon tax in encouraging emission reductions. Every ton of carbon dioxide avoided cost between $106 and $335 in 2009 US dollars – or between $245 and $772 per tonne in current New Zealand dollars.

On a related topic, Tom Puller-Strecker has a bit of a whip-round on the waterbed effect; I'm quoted in it. As refresher: this is the effect where a regulation targeting things inside the ETS cap just frees up credits for others to purchase instead, so has no effect on net emissions.

I do better sending in emailed comments rather than bits on the phone that are transcribed correctly, but could have been worded better. Ah well. 

I wouldn't have viewed it as a 'concession' to say that if your basic model of the world is that future governments will renege on cutting the ETS cap in line with getting to Net Zero, then policies that cost more than the current ETS price could make sense. It's the main sane reason for preferring those measures. 

Similarly, Crampton says the best argument against the waterbed objection to emissions reductions measures that sit outside the ETS is “a political one”.

“If you believe that future governments will lack the commitment to maintain the reductions in the cap and you want to ‘lock things in now’ to force changes, then you would want to use regulatory moves even if they are far more costly than just working through the ETS.”

That sounds like an important concession?

It does.

But Crampton argues that a better option than “a bunch of clunky regulatory interventions” to shore up confidence in the ETS would be a bipartisan agreement on the total quantity of net emissions that the Government and Opposition would be willing to allow between now and 2050.

Arguably that might be a bit like setting a 5-year-old a total quota of screen time to see them through until they were 16.

Crampton also believes that if the Government followed the example of Canada and gave the money it received from selling carbon credits back to the public, then that would improve the popularity of the ETS and in turn might make people more confident its targets would stick.

Some Associate Prof of Finance at Otago has at me in the piece as well. 

It’s a heated debate.

Diaz-Rainey sees the waterbed argument against targeted emissions-reduction policies as “a way of trying to kick things into the long grass”, arguing that impressive cuts to emissions in the United Kingdom would not have been achieved through an emissions trading scheme alone.

Those who oppose such policies should take “a hard look at themselves”, he says.

“Given what's going on in the world and looking at what is happening again in Brisbane at the moment, it's scary. We really don't have time to play these games.”

Not fair, Crampton suggests.

“One of the biggest mistakes in Wellington is viewing that the degree to which one cares about something is best reflected in the amount of money you want to spend on it, or the amount of regulatory effort you want to put into it.

“That is a very poor measure of caring. The best measure of caring is effectiveness. Climate change is too big to try to approach it through radically inefficient measures,” he says.

This is basic maths. The government issues X credits. A policy reducing demand within the covered sector means fewer bids for credits from that sector, which means the next bidder in line gets them instead. 

And while government can decide to reduce the cap even more to offset that effect, it could do so even without the policies - which would be more cost-effective than using the policies unless there's a darned good reason to think that the specific policy abates emissions at lower cost than the going carbon price. 

Where government really likes running populist messes like Cash-for-Clunkers, or corporate welfare like paying companies to buy boilers that were already cost-effective for the company to buy on their own, there needs to be a decent bar for rigour in these things. 

Afternoon roundup

So many tabs across so many windows. A selection:

• Tauranga has a gang problem. Cat burglars. And the problem is growing.


• Fun field experiment: telling people to discriminate less can do more harm than good. 


• Henry Cooke went through the Emissions Reduction Plan. He finds that, of 284 total actions, 158 are plans to have plans, 121 are policies, and 5 are 'barely relevant'. Check his work.


• Rather silly from Business NZ. They took the ILO "Preliminary list of cases as submitted by the social partners Committee on the Application of Standards", where they've raised complaint about the Fair Pay Agreements, and retitled it "Worst cases' breaches of international labour treaties." 


• Rent controls in St Paul, Minnesota, wound up not having the intended distributional effect. "...the tenants who gained the most from rent control had higher incomes and were more likely to be white, while the owners who lost the most had lower incomes and were more likely to be minorities."


• New Zealand has a massive shortage of housing. We have no shortage of land, agricultural or otherwise. If a developer is willing to pay enough for a paddock to convince the farmer to forgo all the net future value of all the future crop production on it, that's hard evidence it's worth more in housing. Mayors begging for government to ban development on agricultural land... well, it ain't going to help solve the housing shortage. All of this is being made worse by the pushes with the Emissions Reduction Plan. This government will wind up wrecking its housing supply agenda.


• Robin Hanson's guess for the best bang-for-buck altruistic research on a low(ish) budget? Better trials on figuring out how to boost uptake of prediction markets. 


• We'd caught a great podcast on the scandal around the 1950s rigging of American game show Twenty-One. The contestant had the answers, and was told when to take a dive. Meanwhile, Australia's election debate...

Stupid government tricks: supply chain rigidities edition

America has a big shortage of baby formula. 

Simplest explanation: piles of regulatory and procurement decisions worked to make it effectively impossible to shift supply chains in response to shocks, and one of their larger manufacturers suffered a shock. 

In the midst of the shortage, Department of Homeland Security is seizing baby formula like it's cocaine. 

NZ could laugh at stupid US Government tricks, but Customs here is seizing Covid tests that are good enough to be used to get you into the country, but not considered good enough for use here. 

And NZ's current plasterboard shortage comes down to the exact same kind of mess: protectionist regulatory constraints that combine to make it impossible to import and use plasterboard. so the system is highly fragile to shocks. 

Mystery solved?

Over at Newsroom, AUT lecturer William Cheung wonders why Kiwis don't seem to worry much about flood risks when buying a house.

Similarly, a few years ago, Arthur Grimes found that the Christchurch earthquakes meant that properties in Wellington subject to liquefaction traded at a discount for a couple of years, and then that risk stopped being noticed.

Maybe I'm nuts, but there seems a pretty simple explanation.

1. The Earthquake Commission covers damages from natural disaster events. The EQC cap is high enough to cover most stuff that isn't going to be a major structural issue. 
2. EQC premiums vary with the sum insured, not with underlying risk. The EQC premium will be the same for a $2m house that sits underneath a cliff that's ready to collapse, a $2m house that's right beside a flood-prone river, a $2m house in Petone that'll get wrecked by the combination of tsunami and liquefaction in any real earthquake, or a $2m weatherboard house in the safest part of Karori. 
3. Commercial insurers could very reasonably fear that the government would slice them in two with breadknives if they charged premiums that reflected actual risk in places like Petone. That whole model starts to fall apart the second some new entrant comes in and decides only to insure safe places at lower premiums. But there are regulatory barriers to entry that can result in low-risk places being overcharged and high-risk places being undercharged, and less competitive pressure than there might be in getting finer risk gradations. 

If that's all right then there's no mystery at all. 

If you live in a flood-prone place, you'll deal with the hassles of being flooded, and maybe people who haven't experienced dealing with insurers in a really bad event affecting lots of properties underrate just how much they should be trying to avoid that. 

But insurance in those places is at a hefty discount relative to the real risk, and if you set policy to subsidise living in risky places, expect that people will do so and that property prices won't much reflect that risk. 

Chats with Plunket

I had a decent chat with Sean Plunket yesterday morning over at The Platform. I'm going to have to start checking their daily podcast list; I'd missed Richard Meade's bit there on the rumoured Cash for Clunkers scheme. 

I've embedded the video below. 

They'd asked me to come in and talk about income tax rates and fairness; I'd prepped a bit around what inflation-adjusting the tax thresholds would look like - also the topic of my column this week over at Newsroom. I'd there suggested hooking the tax thresholds to percentiles in the wage-and-salary distribution, but keying it to either CPI or HLPI would be fine too.

The chat with Plunket wound up hitting a far broader range of things, from immigration to congestion charging. I'd managed to forget that I'd written a submission on Auckland's proposed congestion charging.

Hadn't realised going in it was video rather than just audio; might have worn a prettier mask for video. But I'm indoors, so I'm masked. 

Fun times. My 4pm yesterday, which I'd asked to have at an outdoor beer/coffee spot because I'm Covid-averse, got punted to Zoom because he'd gotten Covid. If he'd been infected a little bit later, we'd have had the meeting before he'd tested himself. It's worth being careful out there. If you make a habit of being unmasked in risky places, your likelihood of catching Covid's got to be approaching 1 - or higher given potential for repeat infection.

Fortunately for me, I've already sunk the costs of others' disapprobation for my idiosyncrasies, making being the only masked person at Wellington Treasury events no more uncomfortable than being one of the few who still think supply and demand are important. 

Cash for CluNZkers

The US Cash for Clunkers programme was a mistake. Intended as stimulus programme for the auto industry, it failed. 

Almost all of the effect was a bringing forward of purchases that would have happened anyway, so the effect was very short-lived. 

It also failed as an environmental programme. Looking only at the CO2 reductions, the cost-per-ton was $106-$335, USD, 2009. Inflation, exchange rate, tons to tonnes: that's $245-$772/tonne in current NZD. Or between three and ten times the going price of carbon abatement in the ETS.

The US didn't and doesn't have an ETS, so the scheme could reduce net emissions - albeit at very high cost. NZ has an ETS, transport is in the covered sector, and there's no domestic auto industry to stimulate even if you wanted to, so a cash-for-clunkers scheme here would be especially stupid. 

Richard Meade had a chat with Sean Plunket over on The Platform yesterday. 

Sean had got wind of that a cash-for-cluNZkers scheme is here in the offing, and could be announced at the budget. 

It'll be fun to see how the legislation handles this one, and whether they even try putting a cost-per-tonne on it. 

Whoever drafted the leg will have to have lots of things to think about. On a few short chats with others on it:

Could I buy a clunker now, expecting a voucher that's worth more than the cost of the car? Should the legislation anticipate that and restrict the voucher to cars purchased at least a year ago? 

Sounds like it'll be means-tested: only poorer households can do it. But they can on-sell any EV they buy to a higher income household right? And that higher-income household might help them front the rest of the cost? 

If you have a university-aged kid, could you strike a deal with that kid's household? Like, buy the kid the clunker now, let her turn it in for the voucher, loan the kid the rest of the money for the car (or top up a zero percent student loan), and have occasional use of the car that would, for convenience, be regularly parked at your house? It could quickly undo all the effort at means testing, and policing could be interesting. 

It'll also be fun to watch the price of used cars, and of EVs, given supply chain issues. 

Oh - and remember - because the ETS has a binding cap, the scheme achieves precisely nothing for emission reduction. The only thing that cuts net emissions covered by the cap is a reduction in the cap. The regulations aren't necessary to cut the cap, and cutting the cap is sufficient to reduce net emissions - and presumably does so for a fraction of the cost of a Cash-for-CluNZkers scheme. 

It just keeps getting stupider.